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Here are some interesting facts every investor should know about the Net Asset Value. Visit https://www.investmentz.com to know more!
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What is Net Asset Value? • Net Asset Value or NAV is a technical measure of a company’s current financial standing. • It is derived by calculating the total number of assets held by the company, minus its aggregate liabilities, which is then divided by the total outstanding shares of the company. • Calculating the NAV makes it possible for investors to understand the value of each share offered by the company. Such a detailed analysis enables one to make the right investment plans and trading decisions. • Usually, NAV is calculated for investment avenues such as mutual funds investments and Exchange-Traded Funds (ETFs). So, here are some interesting facts every investor should know about the Net Asset Value:
1 Assets Valued May be Classified into 2 Broad Categories. Typically, the assets valued in terms of NAV may be bifurcated into the following 2 categories: • Securities: This category include all underlying assets included in the investment scheme – i.e. stocks, bonds, debentures etc. It also consists of the rates of interest and dividends offered in each of these. • Cash: This includes the liquid cash that the company owns, which may be stored in its bank account. However, NAV does not consider any cash liabilities.
2 NAV Facilitates an In-Depth Study of the Asset’s Past Performance. • NAV helps investors to understand the past performances of stocks, bonds and other underlying assets in an investment scheme. • It has been used by many investors and traders to derive the general performance trends of the investment scheme by tracing the individual standing of its each underlying security. • Having said that, this analysis cannot be carried out in isolation and is not sufficient to predict the future performance of the investment vehicle. • However, together with other evaluation strategies like the P/E ratio, a qualitative analysis of the company’s objectives and transparency, and other techniques, the NAV contributes to a careful consideration of investment avenues while deciding what stocks to buy.
3 NAV Enables Investors to Compare Different Investment Options and Make Sound Decisions. • Calculation of the Net Asset Value determines the ideal price at which one should purchase the underlying asset in the investment vehicle. • The current market value of each asset may depend on various factors (such as the company’s performance, overall economic trends etc.), and the NAV of the asset provides an insight into its value by considering its overall performance based on these factors. • This fundamental analysis of shares and other assets helps investors to compare and contrast the NAVs of various investment vehicles. This, in turn, enables one make an informed decision about which ones offer the best investment options in the least prices.
4 NAV Overlooks the Liabilities Incurred While Trading Investment Vehicles. • One of the most important aspects to remember is that NAV only considers the current market value of the investment avenue, but it does not take into account the liabilities that may have been incurred while trading the same. • As a result, it is difficult to understand whether one may have to incur any additional charges while selling the avenue in the future, because s/he does not know about the liabilities that the avenue carries. • Thus, while NAV is a reliable technique to ascertain the individual values of underlying assets in an investment vehicle, it cannot be studied as a standalone evaluation method.
